Raghuram Rajan calls economy a patient that needs emergency treatment now, not later

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Updated: Sep 07, 2020 4:02 PM

Raghuram Rajan said that if one thinks of the economy as a patient, relief is the sustenance the patient needs while on the sickbed and fighting the disease.

raghuram rajan, economic growth, economic resilience, GDP growthWithout relief, households skip meals, pull their children out of school, and send them to work or beg.

Former RBI Governor Raghuram Rajan said that the government’s reluctance to do more at present to conserve resources for a possible future stimulus is a self-defeating strategy. In a post published on LinkedIn, the noted economist, Raghuram Rajan, added that if one thinks of the economy as a patient, relief is the sustenance the patient needs while on the sickbed and fighting the disease. Without relief, households skip meals, pull their children out of school, and send them to work or beg, he further said. Illustrating the need for an economic package, Raghuram Rajan insisted to now think of the economic stimulus as a tonic.

Rajan also stressed that the recent pick-up in sectors like auto is not evidence of the much-awaited V-shaped recovery. It reflects pent-up demand, which will fade as we go down to the true level of demand in the damaged, partially-functioning, economy, he noted. Given the pre-pandemic growth slowdown and the government’s strained fiscal condition, officials believe it cannot spend on both relief and stimulus. Raghuram Rajan highlighted that this mindset is too pessimistic, but the government will have to expand the resources in every possible way and spend as cleverly as possible.

As the Indian economy registered a record slowdown in the first quarter of the current fiscal, the former RBI Governor said that bureaucracy should come out of complacency and take meaningful action. The current crisis requires a more thoughtful and active government, he added. He also termed the sharp decline as alarming and estimated that the numbers will probably be worse when after getting estimates of the damage in the informal sector

Even as various sectors such as construction, manufacturing, etc have started to see some signs of recovery, the economist believed that discretionary spending, especially on high-contact services like restaurants, and the associated employment, will stay low until the virus is contained. Meanwhile, he suggested that reforms can be a form of stimulus, and even if not carried out immediately, a timeline to undertake them can boost current investor sentiment. 

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